JAKARTA. Indonesia’s crowded banking market remains attractive in the eyes of foreign financial institutions as some of them have expressed their interest in acquiring local lenders, executives of the country’s financial authority have said.
The Financial Services Authority’s (OJK) deputy commissioner for banking supervision, Irwan Lubis, said some of the foreign financial institutions had recently met with OJK senior executives to express their interest in acquiring local banks.
“Most of them still hail from Asia, such as from South Korea, Japan and China. They’re looking at small-sized lenders. There are also Middle Eastern firms that are keen on taking over local lenders in the sharia banking business,” he said recently in Medan, North Sumatra.
One firm that has taken a more concrete step toward an acquisition is South Korea’s Shinhan Bank. It has submitted a proposal to the OJK to acquire shares within small private lender Bank Metro Express.
Shinhan’s 2014 financial report showed that it had 338.02 billion won (US$306.17 million) in total consolidated assets and reaped 2.08 billion won in net profit as of December. Metro Express, on the other hand, had Rp 997.71 billion ($76.49 million) in assets and posted Rp 10.47 billion in net profit last year. “Discussions about Shinhan’s acquisition plan are ongoing,” Irwan said.
Another Asian firm seeking to enter Indonesia is major Chinese lender China Construction Bank (CCB). Its data revealed that CCB controlled 16.74 trillion yuan ($2.7 trillion) worth of assets and gained 227.83 billion yuan in net profit in 2014.
However, unlike Shinhan, CCB has not yet submitted its proposal to the banking regulator. Shinhan and CCB’s acquisition processes may take some time to complete because each firm is required to take over two banks at once that will then be merged.
The OJK has encouraged small-sized banks to merge among themselves or with other bigger banks in order to meet the capital requirement set by the agency and to operate more efficiently.
The Indonesian banking sector, as many have observed, is heavily fragmented with a total of 118 commercial banks managing total assets worth only around Rp 5.62 quadrillion.
An earlier Standard & Poor’s (S&P) report on ASEAN banking integration states that “overcrowding” will make Indonesian banks inefficient in the long run and result in weaker financial profiles than their global peers.
According to OJK commissioner on banking supervision Nelson Tampubolon, foreign companies have not objected to the “two bank purchase” requirement so far, thanks to the promising prospects that the industry offers.
“Purchasing two banks at once, albeit small sized, does not seem to be an issue for them because what they really want is to gain entry into the Indonesian market,” he said.
“The foreign firms tell me that they will nurture the banks themselves to reach the success level that they want. This is a different mind-set compared to our major banks, which seek to acquire other major lenders to boost their profile,” Nelson added.
With an economic growth target of more than 5 percent, and with its growing middle class, the Indonesian market indeed offers high potential. The domestic banking market itself offers better prospects compared to some other markets in the Southeast Asian region.
The average return on equity (ROE) — an important profitability measurement used by shareholders — of Indonesian banks stands at 22 percent to 24 percent, as opposed to 11 percent to 12 percent ROE of Singaporean banks and 12 percent to 15 percent ROE of Malaysian lenders.
However, Nelson acknowledged that it would be a different ball game if there were a Taiwanese investor looking to become a controlling shareholder — owning more than a 25 percent stake — in a local bank, citing Indonesia’s embrace of the “One China” policy.
As previously reported, Taiwan’s Cathay Life Insurance Co. Ltd. has agreed to purchase up to 40 percent of shares in local lender Bank Mayapada Internasional. The transaction is estimated to cost $278 million.
Shareholders of both parties have already signed the first phase of the purchase agreement, allowing Cathay to assume a 24.9 percent stake. (Tassia Sipahuta)
